GDP in Third Quarter: “At Least It’s Not Negative”

By at 27 October, 2022, 8:54 pm

by Raymond J. Keating – 

Upon seeing that real GDP grew at 2.6 percent in the third quarter, according to the first estimate released on October 27 by the U.S. Bureau of Economic Analysis, my first thought was: Well, at least it’s not negative.

After real GDP declined by 1.6 percent in the first quarter 2022 and then declined by 0.6 percent in the second quarter – effectively, a recession – real growth of 2.6 percent (all data in real, annual terms unless otherwise noted) was welcome. Perhaps the technical term is: Phew.

However, while there are some positives in this report, there are more concerns.

First, let’s look at the positives. Nonresidential fixed (i.e., business) investment grew by 3.7 percent in the third quarter. That was up from a mere 0.1 percent in the second quarter. Within business investment, growth in the broad “equipment” category was strong at 10.8 percent, and the “intellectual property products” category was up by a solid 6.9 percent.

Also, exports grew strongly for the second straight quarter. In the second quarter, exports were up by 13.8 percent and that was followed by 14.4 percent growth in the third quarter.

Unfortunately, that’s about it in this report in terms of clear positives. Indeed, there are more concerns than plusses.

First, fixed nonresidential “structures” investment plunged by 15.3 percent in the third quarter. That continues a six-quarters-long stretch of declines. Also, residential investment dove by 26.4 percent, and that came on the heels of a 17.8 percent decline in the second quarter, and a stretch of negatives for six consecutive quarters as well now.

Second, the consumer was sluggish, at best. Personal consumption expenditures grew by only 1.4 percent in the third quarter. That included a decline of 1.2 percent in the consumption of goods, which was the third straight quarter of decline, with services rising by 2.8 percent.

Third, imports serve as a signal of the state of the domestic economy, as nearly all are inputs to U.S. domestic businesses. Imports declined by a troubling 6.9 percent in the third quarter, which was the first decline since the onset of the pandemic in the first and second quarters of 2020.

Finally, it must be noted that 2.6 percent is a below-average rate of growth. The U.S. economic growth should at least be topping 3 percent, and during periods of recovery or expansion, better than 4 percent.

In the end, business investment in equipment and intellectual property, exports, and a sluggish consumer pushed the U.S. economy back to growth. That normally would be a foundation upon which to build. And let’s hope that’s the case moving ahead. But in reality, given enormous economic and policy uncertainties swirling at home and abroad, there’s little reason to feel confident about where the economy is headed.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.


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